House challenges legality of new FTZs

Andi Haswidi, The Jakarta Post, Jakarta

The fate of the newly inaugurated Batam, Bintan and Karimun free trade zones (FTZs) appears to be in limbo as members of the House of Representatives continue to question the legal basis for their establishment.

Most members of the House of Representatives' trade and investment commission stated during a working meeting with the government Wednesday that the issuance of an emergency government regulation in lieu of law (emergency regulation) to amend the 2000 Free Trade Zone Law (FTZ) had resulted in a lack of synchronization with other laws and regulations.

The government recently issued the emergency regulation to amend three articles in the 2000 law that provided that the designation of an area as a FTZ must be based upon specific legislation. Under the emergency regulation, a FTZ can be designated by way of government regulation.

The formal stances of all the commission members, with the exception of those from the Democratic Party, stressed that there was still much to be discussed as regards the emergency regulation, especially the potential for conflict with higher legal instruments, including the Constitution.

"The Constitution states that the Unitary Republic of Indonesia is an archipelagic state, the territory and borders of which are to be established by law," said H. Refrizal of the Prosperous Justice Party, citing article 25a of the Constitution.

"This is clearly an attempt to substitute a statute with a government regulation. And this will have significant legal repercussions," he said.

The final stance of the commission stated that the emergency regulation would not only violate the Constitution, but also conflict with the 2000 FTZ Law, 2004 Regional Autonomy Law and 2007 Investment Law.

The government, represented by Trade Minister Mari Elka Pangestu, Finance Minister Sri Mulyani, and Justice and Human Rights Minister Andi Matalatta, said the issuance of the emergency regulation was due to the urgent need to fast-track the development of FTZs in Indonesia in the light of increasing competition from other countries in the region, such as Malaysia and Thailand.

Under the Constitution, the president may issue an emergency regulation in cases of great urgency.

Mari said that Batam and Bintan islands, which are supposed to benefit from their proximity to Singapore, had failed to benefit from substantial economic growth due in part to the lack of legal certainty surrounding the status of the islands.

She further explained that in terms of attractiveness to investors, a survey by the International Finance Corporation (IFC) showed that Indonesia's position had worsened from 131st in 2005 to 135th in 2006.

In terms of foreign investment, Batam and Bintan islands secured US$8.9 billion in 2005, but the figure then dropped to $5.6 billion in 2006 -- far below the $9.6 billion received by Thailand's special economic zone in the same year, she said.

"Between 2004 and 2006, a total of 26 companies closed down their operations in the islands, causing potential losses of $91.9 million and 23,140 layoffs," Mari said.

"It is important for us to immediately provide legal certainty regarding the FTZs," she concluded.

Trade and investment commission chairman Didik J. Rachbini said the urgency argument was unfounded as the government had seven years since the enactment of the FTZ Law in 2000 to prepare bills for the creation of FTZs.

"They failed to use the time available to them to draft the bills. And now they want to push it through with an emergency regulation. The time constraint they are facing now is of the government's own making," Didik said.

The government and the commission are scheduled to meet again to discuss the issue on Sept. 19.
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